The American Opportunity Tax Credit is nothing other than a tax credit that is paid to eligible students for the first four years in order to assist with their education after high school. But how much can you get?
At maximum, you can be eligible for an annual credit of $2500 and if you owe no tax, then $1000 will be refunded to your account. The primary fact about the American Opportunity Tax Credit is that it is subjected to income limitations.
Briefly put, AOTC is a tax credit provided to eligible students to meet their expenses in the first four years of their postsecondary education and is based on income limitations. To claim the credit, your income must at least be $80,000 and if you are married, your joint income must be less than $160,000.
If the parents of the student are applying for AOTC, then an additional $500 can be credited via the Child Tax Credit policy. These funds can only be used for the student’s educational costs, including tuition and other course-related expenses.
Who Can Claim The AOTC?
In order to claim for AOTC, you must meet either of the following requirements;
- You should pay for your own higher education expenses
- You should pay the educational costs of an eligible student, who can be your spouse or any dependent
Remember, that you can only claim AOTC once after receiving the form 1098-T from the Internal Revenue Service to claim the credit.
What Are The Expenses That Can Be Met Through AOTC?
AOTC can only be used for limited expenditures including tuition fees, expenses for books and other supplies, or other mandatory charges while attending any educational body. But which are the educational institutions that can be considered for AOTC claim?
It includes private colleges. Vocational school, university, or any post-secondary educational organization. But there are certain expenses that cannot be qualified as education expenses per the AOTC board like transportation, insurance, medical, or any other living expenses.
This means you can only meet the qualified education expenses through the credit amount. All the other expenses are excluded from the allowed list.
How Can A Student Be Eligible For AOTC?
Not every student can claim AOTC as it has specific rules, regulations, and conditions. So, how can a student be eligible for AOTC?
- Be Pursuing any degree
In order to be eligible for AOTC, you must be a student who has finished their basic education. Also, you must be pursuing any degree or other recognized courses to showcase that you are a student who is requesting for AOTC so that you can carry on your further studies in its first four years.
- Be enrolled for at least a semester or a trimester
You should prove before the authorities that you joined with a recognized education credential and that you’re in the utmost need of support. Enrolment certificates are usually asked for security purposes.
- You should not have finished the first four years of education after high school
Since AOTC can only be claimed for the first four years of education after high school, you should be someone who hasn’t finished that. If you are in your fifth year after high school, then you will be ineligible.
- You should not have a misdemeanor during the last tax year.
You should not be convicted of any felony drug allegations, if yes, then you may also be disqualified for AOTC.
Claiming Of The American Opportunity Tax Credit
In order to claim AOTC, you should first get a Form 1098-T or Tuition Statement from an authentic educational firm. It can either be domestic or foreign. Once you receive it from your school, you will be able to figure out your credit.
The statement will have a certain amount written in a box, which demonstrates the amount received during the first year. However, this particular amount has nothing to do with the amount that you are going to receive for the next academic year.
You can get an idea about the claim amount if you take a quick run through Publication 970, which is a pdf of tax benefits from education.
If there is an error, then you should quickly contact your school as your request would be rejected if it is not immediately rectified.
You can also not make a claim if you are not qualified for it. So, you should make sure you have a copy of all the documents that verify you were qualified so that you have proof when your claim gets rejected stating ineligibility.
Otherwise, you will be subject to return the full amount with interest and possibly, the authorities will also file a complaint against you that will again cause you to pay a penalty amount. Moreover, you will also be banned for the next few years from claiming the AOTC.
Once banned, then you should fill the Form 8862 to activate again.
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Significance Of A Valid TIN
A TIN (Taxpayer Identification Number) is a social security number that is obligatory while applying for AOTC. either you should have the number with you or you should have applied for it on or before the credit return due date.
Refundability Of The American Opportunity Tax Credit
From the total claim amount of $2500, you can get a refund of up to $1000 if you do not have pending tax to pay.
Generally, tax credits are of three types- refundable, partially refundable, and non-refundable. That is, if you do not have any tax liability after receiving the credit amount, then 40% of the AOTC amount will be refunded, which is $1000.
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